Archive for June, 2012

In today’s credit market, a credit score of less than 650 is considered subprime and can impact the way you do business.

A bad rating has consequences and can damage your business in several ways, including reducing the attractiveness of the business in the eyes of other businesses and suppliers, higher rates and insurance premiums, and limiting your company’s ability to acquire funding. Limited funding can affect your plans for expansion, capital expenditures, research and development and staffing. It’s a key factor in your future growth and preserving the cash necessary for survival.

Business owners should be diligent in doing everything possible to repair their bad credit and improve their chances of getting more funding and raising their credit scores. Fortunately, there are many ways to bring your rating up a notch and make yourself more desirable to small business lenders.

Review your credit – The very first step you can take to fix your credit is to conduct a thorough review of your credit profile by requesting and analyzing your credit reports. Reviewing your profile might reveal inaccurate and fraudulent claims, signs of identity theft and wrong information. Make sure that your payments are recorded and detailed. This is why it’s so important to monitor your files because the only one who is policing them and ensuring that accurate data exists is you. The more positive reports that are filed, the better your credit rating will be.

Keeping existing credit card lines in place – Occasionally, larger banks cancel or cap credit lines for business owners, which can be perceived as a negative event. You can offer to temporarily pre-pay company credit cards or even put up a small certificate of deposit as security. This is to buy time until you can put another credit card line in place through a less skittish credit card provider

Monitor customer payments – Business owners can affect their own credit by what credit they offer to their customers. Traditional bank lenders look closely at the receivable collection track record. Collecting customer payments in less than 45 days is more desirable to lenders than waiting over 120 days to receive customer payments.

Making timely payments – Nothing impacts your rating more than your ability to make your credit payments on time. Consistent, timely payments will improve your company’s credit over the short and long term, and is the most direct way to improve your credit rating.

Communicate with unpaid vendors – If you are having trouble paying your vendors, call them to re-negotiate payment terms. It’s vital to reach out before the vendor sends the account to a collection agency to protect your credit score.

Revise your business plan – Keep in mind that borrowing opportunities will open up to businesses that can persuade lenders that they have thought through how they will apply loan proceeds to repaying a loan and increasing their revenue.

Keep debt down – The capital structure of your business – that is, the extent to which you use equity or debt to finance your operations – is an important determinant of your creditworthiness. If other companies see a lot of debt on your balance sheet, they are less likely to extend credit as you pose a greater risk of default.

Credit Rating Factors – Make sure you know which factors affect your business credit score. Many factors can and will affect this score. Late payments and bills aren’t the only things that can affect this number. In fact, fraudulent charges can also severely cripple your credit score.

Cover all Damages – It’s almost goes without saying, but the quickest and most effective way to improve your business credit score is to clear all debts and make sure you can get a fresh start. By decreasing your debts, you will have an instant lift in your credit score. Also, by decreasing your business credit card’s limits, you will notice a significant impact on your report as well. Subsequently, if you have good enough credit, you can ask for a credit line increase, which can improve your credit even more because such an action will lower the percentage of your available credit in use.

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There are currently no laws that protect business owners from unfair business credit reporting, like the Fair Credit Reporting Act does for consumers. Consequently, business owners should do everything possible to repair their bad credit. The information on your credit report directly impacts your credit score. Your credit score in turn determines your ability to obtain credit and potentially be approved for loans.

Improving your credit score will not be an overnight process, but with a plan, patience and hard work, you can improve your business credit score in as little time as possible.